The Basel Committee on Banking Supervision has issued the final piece of the new Basel III regulatory-capital requirements, building on the sweeping changes finalized in December. The new standards mandate that banks raise contingent capital instruments that must be written down before a firm becomes non-viable or is granted an injection of taxpayer support.  This requirement was so controversial that it was delayed for endorsement by the Committee’s overall governing body.  It contains an exception for nations with statutory-resolution regimes.  The U.S. has adopted one in the Dodd-Frank Act, and it is thus possible that the U.S. will not implement these new standards, which raise numerous strategic issues discussed below.  However, the U.S. resolution law does not meet the specific criteria required by the Basel Committee for an exemption unless regulators decide to add to it some form of contingent capital, as authorized – but not mandated – by the Dodd-Frank Act for systemic entities. Decisions in this area have yet to be addressed in any formal fashion by U.S. regulators, who may be divided on this question as they begin work on the Basel III implementation proposal expected mid-year, 2011.

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